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One of the shocking realizations of midlife is how often I have assigned disappointment to plans that didn’t go exactly as, well, planned. There have been seemingly innocuous inconveniences like the market taking a nosedive, and more tangible failures like not winning a critical business deal. Some scenarios sting a little, and some rock me awake at night.
When you think about it, less-than-ideal outcomes happen regularly throughout an ordinary day. Yet, I’ve wasted so much time being surprised by misfortune. Given the many inconveniences in our personal finances, it’s surprising there’s not more focus on how we respond to negative outcomes.
The worst response to financial misfortune is getting sad and doing nothing. Dwelling on what went wrong, feeling sorry for ourselves, and failing to take action leads us nowhere. We stagnate. Our finances stagnate. And our dreams of a secure future fade.
Recently, I’ve spent so much time focusing on preparing to respond well to adversity that I’ve ignored an incredibly obvious mitigation tool, which could lessen the surprise altogether—data. Personal finance data tells the tale.
Data is everywhere. It’s in our bank statements, our investment portfolios and our credit card bills. It’s in our spending patterns, our saving habits and our retirement plans. Yet, many of us overlook this gold mine of information. We might glance at our bank balance or check our credit score occasionally, but we rarely dive deep into the data that can transform our financial lives.
Why is data so important? Because it removes the element of surprise. When we track our spending, we know where our money is going. When we analyze our investments, we understand how they’re performing. When we review our savings, we see if we’re on track to meet our goals. Data gives us a clear picture of our financial health and empowers us to make informed decisions.
Let’s take a closer look at how data can help us respond to financial adversity.
First, data helps us identify patterns. By tracking our spending over time, we can see where we’re consistently overspending and where we might cut back. Maybe we’re spending too much on dining out or impulsive online shopping. Identifying these patterns allows us to adjust our habits before they become a problem.
Second, data helps us set realistic goals. When we know how much we’re earning and spending each month, we can set achievable savings goals. We can plan for big expenses, like a vacation or a new car, without going into debt. And we can ensure we’re saving enough for retirement by analyzing our long-term financial data.
Third, data helps us measure progress. It’s easy to feel like we’re not making headway when we don’t have concrete numbers to look at. But when we track our progress over time, we can see how far we’ve come. Maybe we’ve paid off a significant chunk of debt or built up a healthy emergency fund. These milestones are motivating and encourage us to keep going.
Last, data helps us stay accountable. When we review our finances regularly, we hold ourselves accountable for our spending and saving decisions. We’re less likely to make impulsive purchases or neglect our savings goals when we know we’ll have to face the data later.
So, how can you start using data to improve your financial life? Here are a few simple steps:
1. Track your spending: Use a budgeting app or a spreadsheet to record every expense. Categorize your spending and look for patterns. Identify areas where you can cut back and set a budget that aligns with your financial goals.
2. Analyze your investments: Review your investment portfolio regularly. Look at the performance of your investments and assess whether they’re aligned with your risk tolerance and long-term goals. Consider consulting a financial adviser if you need help.
3. Review your savings: Check your savings accounts and retirement funds. Are you saving enough each month to meet your goals? If not, make adjustments to your budget or consider increasing your income.
4. Set financial goals: Use your data to set realistic, achievable goals. Whether it’s paying off debt, saving for a down payment on a house, or building an emergency fund, having clear goals will keep you motivated and focused.
5. Stay accountable: Make a habit of reviewing your finances regularly. Set aside time each week or month to go over your budget, track your progress and make any necessary adjustments.
By using data to inform our financial decisions, we can reduce the element of surprise and respond more effectively to setbacks. We can turn disappointment into opportunity and build a secure financial future. After all, in the world of personal finance, knowledge truly is power.•
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Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com.
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